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Understanding Accounting and Financial Information - Coggle Diagram
Understanding
Accounting and Financial Information
THE ROLE OF ACCOUNTING INFORMATION
What Is Accounting?
Accounting is the recording, classifying, summarizing, and interpreting of
financial events and transactions in an organization to provide management
and other interested parties the financial information they need to make good decisions about its operation.
UNDERSTANDING KEY FINANCIAL STATEMENTS
The balance sheet, which reports the firm’s financial condition on a
specific date.
The income statement, which summarizes revenues, cost of goods, and
expenses (including taxes), for a specific period and highlights the
total profit or loss the firm experienced during that period.
The statement of cash flows, which provides asummary of money
coming into and going out of the firm. It tracks a company’s cash
receipts and cash payments.
THE ACCOUNTING CYCLE
Using Technology in Accounting
double-entry bookkeeping. It requires
two entries in the journal and in the ledgers (discussed next) for each
transaction.
With sophisticated accounting software available and technology capa-
bilities growing,you might wonder why you need to study and understand accounting.
ACCOUNTING DISCIPLINES
Managerial Accounting
Managerial accounting provides information and analysis to managers inside
the organization to assist them in decision making.
Financial Accounting
Financial accounting differs from managerial accounting in that the financial information and analyses it generates are for people primarily outside the orga-
nization.
Auditing
Reviewing and evaluating the information used to prepare a company’s finan-
cial statements is referred to as auditing.
An independent audit is an evaluation and unbiased opinion
about the accuracy of a company’s financial statements.
ANALYZING FINANCIAL
PERFORMANCE USING RATIOS
Liquidity Ratios
The current ratio is the ratio of a firm’s current assets to its current lia-
bilities.
Leverage (Debt) Ratios
The question the current ratio attempts to answer is: Is Very Vegetarian
financially secure for the short term (less than one year)?
Profitability (Performance) Ratios
This ratio is particularly important to firms with difficulty converting
inventory into quick cash.